You guys know I’m a big softie, but Tamny’s sarcastic finger-wagging at David Gordon was just too painful to bear. The specific controversy was whether Mises thought money was a “measuring rod” of value. (He did NOT.) Details here. But for my analogy:

I don’t mean to be histrionic about it, but for anyone who is intimately familiar with the work of Mises, the above musings from Tamny are simply breathtaking. It’s hard for me to come up with analogy to do it justice, but here goes: Imagine a scholar working for theAlbert Einstein Institute wrote a blog post arguing that gravity actually reflected the curvature of space-time. Then someone writes a rebuttal in Forbes, saying, “This is an odd claim, because Einstein himself taught us that everything is relative. One man’s curvature is another’s straight line.” Well, that analogy probably won’t do much for most readers, but I tried…

“In an exchange economy, the objective exchange value of commodities becomes the unit of calculation. This involves a threefold advantage. In the first place we are able to take as the basis of calculation the valuation of all individuals participating in trade. The subjective valuation of one individual is not directly comparable with the subjective valuation of others. It only becomes so as an exchange value arising from the interplay of the subjective valuations of all who take part in buying and selling. Secondly, calculations of this sort provide a control upon the appropriate use of the means of production. They enable those who desire to calculate the cost of complicated processes of production to see at once whether they are working as economically as others. If, under prevailing market prices, they cannot carry through the process at a profit, it is a clear proof that others are better able to turn to good account the instrumental goods in question. Finally, calculations based upon exchange values enable us to reduce values to a common unit. And since the higgling of the market establishes substitution relations between commodities, any commodity desired can be chosen for this purpose. In a money economy, money is the commodity chosen.

Money calculations have their limits. Money is neither a yardstick of value nor of prices. Money does not measure value. Nor are prices measured in money: they are amounts of money. (Mises, Ludwig von. 2009. Socialism. An Economic And Sociological Analysis. Ludwig von Mises Institute, Auburn, Ala. p. 115).
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You say that Mises does not think that money can measure value and he does say above that “Money does not measure value”, and yet:

(1) Mises says that the “subjective valuation of one individual” can be made “directly comparable with the subjective valuation of others” through money prices as “exchange value arising from the interplay of the subjective valuations of all who take part in buying and selling” and

(2) that “exchange values enable us to reduce values to a common unit”.
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So either Mises is contradictory and confused, or you’re being too harsh on Tamny.

“The subjective valuation of one individual is not directly comparable with the subjective valuation of others. It only becomes so as an exchange value arising from the interplay of the subjective valuations of all who take part in buying and selling”

Mises says it “becomes so as an exchange value arising from the interplay of the subjective valuations of all who take part in buying and selling”. Should have read the passage more carefully, M_F.

Mises isn’t saying that exchange values end up enabling people to directly compare subjective values after all.

He is saying that exchange values are merely what arise from different subjective valuations interacting in a market of buying and selling.

He is trying to distinguish between direct comparisons which rely on an objective standard of measure, on the one hand, and exchange values which rely on subjective valuations in buying and selling, on the other.

In other words, buying and selling does not suddenly make manifest direct comparisons using a measure stick. It “only becomes” exchange values.

The one point that is valid is: yes, what I should have said is that Mises thinks that the “subjective valuation of one individual” can be made **indirectly** “comparable with the subjective valuation of others” through the exchange values “arising from the interplay of the subjective valuations of all who take part in buying and selling”.

But entails that money prices do provide an indirect means by which subjective values can be (even if only approximately?) compared.

But entails that money prices do provide an indirect means by which subjective values can be (even if only approximately?) compared.

Sure, but how approximate?

Mises put out plenty of warnings to indicate the danger of this. Personally I don’t 100% agree with Mises, but if Tamny is going to use Ludwig von Mises as his source of authority, he can hardly just skip past and pretend there’s no issue to consider.

Sure, I’ll agree with that interpretation. The comparison is key, and for an exchange value of $10 say (for a sandwich) Mises is saying that we can see how the subjective valuation of the seller and the subjective valuation of the buyer “compare”, and that we are not to think of the $10 as any measure of value of the sandwich.

LK sometimes you really miss the mark. In the very quotation you provided, Mises point-blank says: “Money is neither a yardstick of value nor of prices.” You’ve actually dug up a better quote than either David Gordon or I found. The entire dispute between Gordon and Tamny was whether money is a measuring rod of economic value, the way a ruler measures length. Thank you.

LK was up until recently suggesting that Mises’ explanation of indirect comparisons of subjective value in the form of exchange ratios, which enables a reduction of value to a common unit, is just another way of saying (in LK’s opinion) that money really is a measurement of value after all.

And yet Mises also says that the “subjective valuation of one individual” can be made *indirectly* “comparable with the subjective valuation of others” through the exchange values “arising from the interplay of the subjective valuations of all who take part in buying and selling”.

So even Mises appears to be saying that money prices can provide a approximate way of comparing subjective values. Just like M_F you will not address this issue.

Also, I not only do not “refuse” to address what you are saying, I have been directly responding to it.

Money prices being an indirect way of comparing subjective values is not money prices serving as a measuring yardstick, nor does that entail that they represent any “approximate” comparison, because an “approximation” implies an actual existence of that which is being approximated, and Mises explicitly rejects such a thing.

“Money calculations have their limits. Money is neither a yardstick of value nor of prices. Money does not measure value. Nor are prices measured in money: they are amounts of money. And, although those who describe money as a “standard of deferred payments” naively assume it to be so, as a commodity it is not stable in value. The relation between money and goods perpetually fluctuates not only on the “goods side,” but on the “money side” also.” – Mises, Socialism, Ch 5.

“The subjective valuation of one individual is not directly comparable with the subjective valuation of others. It only becomes so as an exchange value arising from the interplay of the subjective valuations of all who take part in buying and selling”

LK, there is no contradiction. Money doesn’t measure value of things. But how people value things has an impact on how many units of money change hands for the thing. But if my rent is £2000 pm, that does NOT mean I value it at that amount. No, I value it MORE than that.

No, Jan, even if Mises thinks that there is no **direct** way to compare subjective values because there is no objective unit of measure for subjective utility, this doesn’t change the fact that he says that the “subjective valuation of one individual” can be made *indirectly* “comparable with the subjective valuation of others” through the exchange values “arising from the interplay of the subjective valuations of all who take part in buying and selling”.

Mises also says that “calculations based upon exchange values enable us to reduce values to a common unit”.

This means that Mises must think that money prices do provide an indirect means by which subjective values can be — even if only approximately — compared.

As Mises wrote in Human Action, “One must disregard the intermediary role played by money in order to realize that what is ultimately exchanged is always economic goods of the first order against other such goods. Money is nothing but a medium of personal exchange (my emphasis).” In short, Mises saw money just as Forbes and Ames do, as a measure that fosters the exchange of actual economic goods.

OK, Mises doesn’t say money is a measure, he says medium of exchange. I could accept that by implication the transaction is measuring value for that particular person at that particular time, but various things might happen after the transaction:

[1] The person who took the money may change his/her subjective values.
[2] Other people with goods for sale may change their subjective values.
[3] The quantity of money might grow or shrink, thus leading to confusion with regard to everyone’s subjective values.
[4] The quality of money might change (e.g. coins getting clipped or gold getting debased), also leading to confusion.

But then we get this:

That’s why Forbes and Ames don’t fear the “monetary expansion” that Gordon views as inflationary. Good money is once again heavily demanded, so if money is being defined in terms of gold such that it’s stable, it’s only logical that demand for it will soar. And to maintain the price of money as measured in gold, it will be necessary to expand its supply. Yes, growing economies require more of the lubricant that is money, good money is desired globally, but to avoid a decline or rise in the value of the unit, Forbes and Ames would define the unit through gold to ensure its maximum stability.

Now we are talking about some sort of universal measure of value that stays consistent over time and goes beyond any person’s subjective opinion. The leap goes well beyond the original idea of money as a medium of exchange. If Tamny is to blame here, then the blame should be for making such a big leap of faith.

I accept that it would be nice to have a stable money, with consistent value. It would make calculations easier. We might even say that money is ideally a universal measure of value… but that’s an abstract concept, no one expects that this will be generally achievable. As Mises points out (from Bob’s quote): “In the actual world of change there are no fixed points, dimensions, or relations which could serve as a standard.”

If the price of sugar is going down while the price of grain is going up then do we have price inflation or deflation? Should the value of money be based on the price of grain or the price of sugar, or some weighted mix of both? You just have to accept that the measure you get will be rough. We hope that prices don’t slide around too much, we come up with inflation metrics that are OK but not perfect.

One reason that I believe in the “competing currency” school of free banking, is that’s what we do with all hard problems. For example, people would like ideally to have a car that gets you from A to B very quickly and uses no gas at all, they also want a comfortable ride, and it has to look great as well. No one expects this vehicle actually exists, but they choose the car they buy with a certain set of ideas in mind.

Similarly, with competing currencies, people can choose the most stable, or at least the thing that most closely conforms to each person’s idea of stability, given that we never can 100% determine what a true “measure of value” is anyhow. As ever, a trade-off exists here, and only the market participants can make that decision.

Dr. Henderson, I assume you read Tamny’s article on money creation (where he claims banks don’t create money, in spite of what every principles and money and banking textbook states). The man is supremely confident in his screwed up understanding of basic facts about reality. To say he writes with sarcasm is being very polite – quite charitable, given everything he writes.

Yeah you might be right, perhaps “sarcasm” was not the right word. “Cheekiness”? The first time I read it, when Tamny kept talking about Gordon selling his “keen economic insights” for money, I thought he was being sarcastic–since the point of his post is that David doesn’t know the first thing about Mises and money, even though David works for the Mises Institute–but upon a second skim maybe he meant that sincerely.

It bears thinking through the logic of exchange to understand the confusion here.

Suppose I am A. I possess good a. Suppose I come across B, who possesses good b. If I prefer to have b to a, and B prefers to have a to b, we will trade with one another. Neither of us can know, however, how much of a preference the other has for one good over the other. We can only know that, evidently, the other prefers what they got to what they had to some degree.

Now suppose we introduce a medium of exchange, g.

Let’s say that I still possess a, but B now offers me g for it. I don’t agree to trade a for g because I prefer g to a per se, but because my perception is that I can get something I do prefer to a, by exchanging with some third party by giving them g. B doesn’t know what I think I can get for g, he only knows what he thinks I can get for g, in further exchanges. He certainly doesn’t know what I want to exchange g for with some unknown third party. He can’t have the slightest inkling what thing it is I prefer to a, and to what degree, that I am willing to exchange for it indirectly through g.

Note two things: the knowledge of our precise valuations remains mysterious to each other, and my willingness to exchange something for the medium of exchange reflects my perception of what others will trade with g for to me.

Guys why fight? Tammy is out of his mind. His column on monetarism was worse. He took an econ class in his MBA and started calling himself an economist. A MM had to called him on it. Forbes has no credibility until Tammy is there.

From the link, Sanchez describes why value cannot be attributed to money because value changes with quantity – e.g. two of something does not provide twice the value of one of something. In his example, half the quantity of oil did not provide half the utility. Fair enough, but why not approach this like differential calculus? If you have 1/1000 extra oil, then the value is changed very little, and the extra utility is very close to 1/1000th extra. At the limit, the increment does not change the value of the extra unit.

To say there is no value of money seems a bit like saying you cannot calculate the slope of a line.

Sanchez’ example is like taking two points on the line separated by a large distance, connecting them, and declaring that the slope cannot be measured in this way because the slope itself changes between the measuring points. True enough, but if you make your points close enough, you get a very good measure of the slope, and if you take it to the limit, you get the actual slope.